X Quarterly report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934

For
the quarterly period ended September 29, 2001

OR

Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For
the transition period from
to

Commission file number 0-6217

INTEL CORPORATION

(Exact name of registrant as specified
in its charter)

Delaware

94-1672743

(State or other jurisdiction
of

(I.R.S. Employer

incorporation or
organization)

Identification No.)

2200 Mission College
Boulevard, Santa Clara, California

95052-8119

(Address of principal
executive offices)

(Zip Code)

(408) 765-8080

(Registrant's telephone number,
including area code)

N/A

(Former name, former address, and former
fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No

Shares outstanding of the Registrant's
common stock:

Class

Outstanding at September 29,
2001

Common stock, $0.001 par
value

6,712 million

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Intel Corporation

Consolidated Condensed Statements of Income (unaudited)

Three Months
Ended

Nine Months
Ended

Sept.
29,

Sept.
30,

Sept.
29,

Sept.
30,

(in millions, except per share amounts)

2001

2000

2001

2000

Net revenues

$

6,545

$

8,731

$

19,556

$

25,024

Costs and expenses:

Cost of sales

3,553

3,148

10,085

9,420

Research and development

930

977

2,844

2,899

Marketing, general and
administrative

1,064

1,321

3,393

3,668

Amortization of goodwill and other
acquisition-related intangibles and costs

609

420

1,788

1,127

Purchased in-process research and
development

--

8

198

91

Operating costs and expenses

6,156

5,874

18,308

17,205

Operating income

389

2,857

1,248

7,819

Gains (losses) on equity investments, net

(182)

716

(179)

3,309

Interest and other, net

(70)

250

320

638

Income before taxes

137

3,823

1,389

11,766

Provision for taxes

31

1,314

602

3,424

Net income

$

106

$

2,509

$

787

$

8,342

Basic earnings per common share

$

0.02

$

0.37

$

0.12

$

1.24

Diluted earnings per common share

$

0.02

$

0.36

$

0.11

$

1.19

Cash dividends declared per common share

$

0.040

$

0.020

$

0.080

$

0.070

Weighted average common shares
outstanding

6,718

6,719

6,721

6,704

Weighted average common shares
outstanding, assuming dilution

6,876

7,007

6,888

7,002

See Notes to Consolidated Condensed Financial Statements.

Item 1. Financial Statements (continued)

Intel Corporation

Consolidated Condensed Balance Sheets

Sept.
29,

Dec.
30,

(in millions)

2001

2000

(unaudited)

ASSETS

Current assets:

Cash and
cash equivalents

$

4,864

$

2,976

Short-term
investments

4,294

10,497

Trading
assets

1,059

350

Accounts
receivable, net

3,043

4,129

Inventories:

Raw
materials

297

384

Work
in process

1,308

1,057

Finished
goods

746

800

2,351

2,241

Deferred
tax assets

1,019

721

Other
current assets

237

236

Total current assets

16,867

21,150

Property, plant and
equipment

33,521

28,253

Less accumulated
depreciation

15,383

13,240

Property, plant and
equipment, net

18,138

15,013

Marketable strategic
equity securities

165

1,915

Other long-term
investments

1,249

1,797

Goodwill, net

4,714

4,977

Other
acquisition-related intangibles, net

888

964

Other assets

2,210

2,129

TOTAL ASSETS

$

44,231

$

47,945

LIABILITIES AND
STOCKHOLDERS' EQUITY

Current liabilities:

Short-term
debt

$

302

$

378

Accounts
payable

1,792

2,387

Accrued
compensation and benefits

901

1,696

Deferred
income on shipments to distributors

507

674

Accrued
advertising

572

782

Other
accrued liabilities

1,351

1,440

Income
taxes payable

768

1,293

Total current
liabilities

6,193

8,650

Long-term debt

972

707

Deferred tax
liabilities

1,164

1,266

Stockholders' equity:

Preferred stock

--

--

Common
stock and capital in excess of par value

8,965

8,486

Acquisition-related
unearned stock compensation

(207)

(97)

Accumulated
other comprehensive income (loss)

(67)

195

Retained
earnings

27,211

28,738

Total stockholders'
equity

35,902

37,322

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY

$

44,231

$

47,945

See Notes to Consolidated Condensed Financial Statements.

Item 1. Financial Statements (continued)

Intel Corporation

Consolidated Condensed Statements of Cash Flows
(unaudited)

Nine Months
Ended

Sept. 29,

Sept. 30,

(in millions)

2001

2000

Cash flows provided by (used for) operating
activities:

Net income

$

787

$

8,342

Adjustments to reconcile net income to net
cash provided by

operating activities:

Depreciation

3,038

2,463

Amortization of goodwill and other
acquisition-related intangibles
and costs

The accompanying interim consolidated condensed financial statements of Intel
Corporation have been prepared in conformity with accounting principles generally accepted
in the United States, consistent in all material respects with those applied in the
company's Annual Report on Form 10-K for the year ended December 30, 2000, except as noted
below. The interim financial information is unaudited, but reflects all normal
adjustments, which are, in the opinion of management, necessary to provide a fair
statement of results for the interim periods presented. The interim financial statements
should be read in connection with the financial statements in the company's Annual Report
on Form 10-K for the year ended December 30, 2000. Certain amounts for prior periods have
been reclassified to conform to the current presentation.

Recent Accounting Pronouncements

In July 2001 the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." These standards become effective for
fiscal years beginning after December 15, 2001. Beginning in the first quarter of fiscal
2002, goodwill will no longer be amortized but will be subject to annual impairment tests.
All other intangible assets will continue to be amortized over their estimated useful
lives. The new rules also require business combinations initiated after June 30, 2001 to
be accounted for using the purchase method of accounting and goodwill acquired after June
30, 2001 will not be amortized. Goodwill existing at June 30, 2001, will continue to be
amortized through the end of fiscal 2001. Through the end of fiscal 2001, the company will
test goodwill for impairment using the current method, which uses an undiscounted cash
flow approach. For 2002, the company will begin to test goodwill for impairment under the
new rules, applying a fair-value-based approach. The company is currently evaluating the
potential impact, if any, of the application of the goodwill impairment provisions of the
new rules on its financial condition and results of operations. Based on acquisitions
completed as of September 29, 2001, application of the goodwill non-amortization
provisions of these rules, without considering any potential impairment, is expected to
result in an increase in net income of approximately $1.5 billion for fiscal year 2002.

Change in Accounting Principle

Effective the beginning of the first quarter of 2001, the company adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, which required the company to recognize all derivative instruments as either
assets or liabilities on the balance sheet at fair value. The accounting for gains or
losses from changes in fair value of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship as well as on the type of
hedging relationship. See "Derivative Financial Instruments."

The cumulative effect of the adoption of SFAS 133 was an increase in income before
taxes of $45 million and this amount is included in interest and other, net in the first
quarter of 2001. The adoption did not have a material effect on other comprehensive
income. Upon initial adoption of SFAS 133, approximately $1.4 billion of
available-for-sale investments in marketable debt securities that had related derivative
instruments were reclassified to trading assets.

Trading Assets

Trading assets are stated at fair value, with gains or losses resulting from changes in
fair value recognized currently in earnings. The company elects to classify as trading
assets certain marketable securities whose gains or losses are offset by losses or gains
on related derivatives or liabilities. For marketable debt securities, gains or losses
from changes in fair value, offset by losses or gains on related derivative instruments,
are included in interest and other, net. For certain marketable equity securities, gains
or losses from changes in fair value, offset or partially offset by losses or gains on
related equity derivative instruments, are included in gains or losses on equity
investments, net. See "Derivative Financial Instruments, Equity market risk."
For other marketable equity instruments, gains or losses from changes in fair value,
offset by losses or gains on liabilities related to certain deferred compensation
arrangements, are included in interest and other, net.

The company's primary objective for holding derivative financial instruments is to
manage interest rate, foreign currency and certain equity market risks. The company's
derivative instruments are recorded at fair value and are included in other current
assets, other assets, other accrued liabilities or long-term debt. The company's
accounting policies for these instruments are based on whether they meet the company's
criteria for designation as hedging transactions, either as cash flow or fair value
hedges. The criteria for designating a derivative as a hedge include the instrument's
effectiveness in risk reduction and one-to-one matching of the derivative instrument to
its underlying transaction. Gains and losses on derivatives that are not designated as
hedges for accounting purposes are recognized currently in earnings, and generally offset
changes in the values of assets and liabilities.

As part of its strategic investment program, the company also acquires equity
derivative instruments, such as warrants, that are not designated as hedging instruments.
The gains or losses from changes in fair values of these equity derivatives are recognized
in gains or losses on equity investments, net.

Foreign currency risk. The company transacts business in various foreign
currencies, primarily Japanese yen and certain other Asian and European currencies. The
company has established revenue, expense and balance sheet risk management programs to
protect against reductions in value and volatility of future cash flows caused by changes
in foreign exchange rates. The company uses currency forward contracts, currency options,
foreign currency borrowings and currency interest rate swaps in these risk management
programs. These programs reduce, but do not always entirely eliminate, the impact of
currency exchange movements.

Currency forward contracts and currency options, which generally expire within 12
months and are used to hedge exposures to variability in expected future
foreign-denominated cash flows, are designated as cash flow hedges. For these derivatives,
the effective portion of the gain or loss is reported as a component of other
comprehensive income in stockholders' equity and is reclassified into earnings in the same
period or periods during which the hedged transaction affects earnings, and within the
same income statement line item. The ineffective portion of the gain or loss on the
derivative in excess of the cumulative change in the present value of future cash flows of
the hedged item, if any, is recognized in interest and other, net during the period of
change. Prior to the adoption of SFAS 133, derivatives hedging the currency risk of future
cash flows were not recognized in the balance sheet.

Currency interest rate swaps and currency forward contracts are used to offset the
currency risk of foreign-denominated debt securities classified as trading assets as well
as other assets and liabilities denominated in foreign currencies. Changes in fair value
of the underlying assets and liabilities are generally offset by the changes in fair value
of the related derivatives, with the resulting net gain or loss, if any, recorded in
interest and other, net.

Interest rate risk. The company's primary objective for holding investments in
debt securities is to preserve principal while maximizing yields, without significantly
increasing risk. To achieve this objective, the returns on a substantial majority of the
company's investments in long-term fixed rate marketable debt securities are swapped to
U.S dollar LIBOR-based returns, using interest rate swaps and currency interest rate swaps
which are not designated as hedging instruments. Changes in fair value of the debt
securities classified as trading assets are generally offset by changes in fair value of
the related derivatives, resulting in negligible net impact. The net gain or loss, if any,
is recorded in interest and other, net.

The company also enters into interest rate swap agreements to modify the interest
characteristics of its outstanding long-term debt. These are designated as fair value
hedges. The gain or loss from the change in fair value of the interest rate swap as well
as the offsetting change in the hedged fair value of the long-term debt are recognized in
interest expense. Prior to the adoption of SFAS 133, interest rate swaps related to
long-term debt were not recognized in the balance sheet, nor were the changes in the
market value of the debt.

Equity market risk. From time to time the company may enter into designated
fair value hedging transactions using equity options and collars to hedge the equity
market risk of marketable securities in its portfolio of strategic equity investments. The
gain or loss from the change in fair value of these equity derivatives as well as the
offsetting change in hedged fair value of the related strategic equity securities are
recognized currently in gains or losses on equity investments, net. The company may or may
not enter into transactions to reduce or eliminate the market risks of its investments in
strategic equity derivatives, including warrants. Prior to the adoption of SFAS 133,
warrants were not considered to be derivative instruments for accounting purposes. The
company also uses equity derivatives not designated as hedging instruments to offset the
change in fair value of certain strategic marketable equity instruments classified as
trading assets.

Measurement of effectiveness of hedge relationships. For currency forward
contracts, effectiveness of the hedge is measured by using forward rates to value the
forward contract and the forward value of the underlying hedged transaction. For currency
options and equity option-based derivatives, effectiveness is measured by the change in
the option's intrinsic value, which represents the change in the option's strike price
compared to the spot price of the underlying hedged transaction. Not included in the
assessment of effectiveness are the changes in time value of these options. For interest
rate swaps, effectiveness is measured by offsetting the change in fair value of the
long-term debt with the change in fair value of the interest rate swap.

Any ineffective portions of the hedge, as well as amounts not included in the
assessment of effectiveness, are recognized currently in interest and other, net or in
gains or losses on equity investments, net, depending on the nature of the underlying
asset or liability. If an underlying hedged transaction is terminated earlier than
initially anticipated, the offsetting gain or loss on the related derivative instrument
would be recognized in income in the same period. Subsequent gains or losses on the
related derivative instrument would be recognized in income in each period until the
instrument matures, is terminated or is sold.

During the nine months ended September 29, 2001, the portion of hedging instruments
excluded from the assessment of effectiveness and the ineffective portions of hedges had
no material impact on earnings for either cash flow or fair value hedges, and no cash flow
hedges were discontinued as a result of forecasted transactions that did not occur.

Earnings per Share

A reconciliation of the shares used in the computation of the company's basic and
diluted earnings per common share is as follows (in millions):

Weighted average common shares outstanding, assuming dilution, includes the incremental
shares that would be issued upon the assumed exercise of stock options and the assumed
conversion of the convertible notes for the period they were outstanding. For the three
and nine months ended September 29, 2001, approximately 223 million and 207 million,
respectively, of the company's stock options were excluded from the calculation of diluted
earnings per share because they were antidilutive. These options could be dilutive in the
future.

Stock Repurchase Program

During the first nine months of 2001, the company repurchased 98.4 million shares of
common stock under the company's authorized repurchase program at a cost of $3.0 billion.
In September 2001, the board of directors increased the number of shares available under
the repurchase program by 300 million shares. With this increase, a total of 328 million
shares remained available under the repurchase authorization as of September 29, 2001.

Gains (Losses) on Equity Investments, Net

During the first nine months of 2001, net losses on investments in equity securities
and certain equity derivatives were $179 million. These losses included impairments
recognized on investments in equity securities of approximately $833 million, including
$185 million of impairments recognized in the third quarter.

Interest and Other, Net

Interest and other, net included (in millions):

Three Months Ended

Nine Months Ended

Sept 29,

Sept 30,

Sept 29,

Sept 30,

2001

2000

2001

2000

Interest income

$

126

$

267

$

520

$

672

Interest expense

(16)

(5)

(41)

(26)

Impairment of equity-method
investment

(166)

--

(166)

--

Other, net

(14)

(12)

7

(8)

Total

$

(70)

$

250

$

320

$

638

Acquisitions

During the first nine months of 2001, the company completed several acquisitions, all
of which have been accounted for using the purchase method of accounting.

In February 2001, the company acquired nSerial Corporation in exchange for 1.8 million
unregistered shares of Intel common stock. Approximately 1.5 million of these shares are
contingent upon the continued employment of certain employees (see
"Acquisition-Related Unearned Stock Compensation"). nSerial is a developer of
high-speed electronic components for optical modules used in networks.

In February 2001, the company acquired Nuron, Inc. in exchange for 2.4 million
unregistered shares of Intel common stock. Approximately 0.4 million of these shares are
contingent upon the continued employment of certain employees. Nuron is a designer of
memory enhancing devices that reduce the burden on computer processors in order to achieve
higher system performance, flexibility and capacity.

In March 2001, the company acquired Xircom, Inc., in a cash transaction. Xircom is a
supplier of PC cards and other products used to connect mobile computing devices to
corporate networks and the Internet.

In April 2001, the company acquired VxTel, Inc., in a cash transaction. In addition to
the $381 million of consideration paid upon acquisition, payment of approximately $110
million is contingent upon the continued employment of certain employees. VxTel is a
semiconductor company that has developed Voice over Packet (VoP) products that deliver
high-quality voice and data communications over next-generation optical networks.

In April 2001, the company acquired Cognet, Inc. in exchange for cash and 3.6 million
unregistered shares of Intel common stock, of which approximately 1.4 million shares are
contingent upon the continued employment of the founding stockholders. An additional
900,000 registered shares are issuable to certain employees contingent upon meeting
certain performance criteria and are not included in purchase consideration. In addition
to the total common stock and cash consideration of $156 million, payment of approximately
$60 million in cash compensation is contingent upon continued employment of certain
employees and meeting certain performance criteria. Cognet is a developer of components
that process electrical signals within optical modules after those signals have been
converted from light waves. Cognet has developed electronic components for use in the 10
Gigabit Ethernet modules.

In May 2001, the company acquired LightLogic, Inc. in exchange for 14.2 million shares
of Intel common stock. Approximately 1.9 million of these shares are contingent upon the
continued employment of certain employees. LightLogic develops highly integrated
opto-electronic components and subsystems for high-speed fiber optics telecommunications
equipment.

These purchase transactions are further described below (in millions):

Consideration

Purchased
In-Process
Research and
Development

Goodwill(1)

Identified
Intangibles

Form of Consideration (2)

nSerial

$

66

$

3

$

29

$

--

Common stock and options
assumed

Nuron

$

91

$

19

$

60

$

--

Common stock and options
assumed

Xircom

$

553

$

53

$

321

$

177

Cash and options assumed

VxTel

$

381

$

68

$

270

$

--

Cash and options assumed

Cognet

$

156

$

9

$

91

$

20

Cash, common stock and
options assumed

LightLogic

$

409

$

46

$

292

$

9

Common stock and options
assumed

(1) During Q3 2001, goodwill was reduced by $135 million, primarily related to the
recording of deferred tax assets due to changes in the estimated recoverability of certain
acquired tax benefits.

(2) Consideration includes the cash paid and the value of any stock issued and options
assumed, less any cash acquired, and excludes contingent employee compensation payable in
cash and any debt assumed.

For the first nine months of 2001, $198 million was allocated to purchased in-process
research and development (IPR&D) and expensed upon acquisition of the above companies,
because the technological feasibility of products under development had not been
established and no future alternative uses existed. The fair value of the IPR&D was
determined using the income approach, which discounts expected future cash flows from
projects under development

to their net present value. Each project was analyzed to determine the technological
innovations included; the utilization of core technology; the complexity, cost and time to
complete development; any alternative future use or current technological feasibility; and
the stage of completion. Future cash flows were estimated, taking into account the
expected life cycles of the product and the underlying technology, relevant market sizes
and industry trends. A discount rate was determined for each project based on the relative
risks inherent in the project's development horizon, the estimated costs of development,
and the level of technological change in the project and the industry, among other
factors. Intel believes the amounts determined for IPR&D, as well as developed
technology, are representative of fair value and do not exceed the amounts an independent
party would pay for these projects.

In addition to the transactions described above, Intel also purchased other businesses
in smaller transactions during the first nine months of 2001. The total amount allocated
to goodwill for these transactions was $57 million, which represents a substantial
majority of the consideration for these transactions.

The consolidated condensed financial statements include the operating results of
acquired businesses from the dates of acquisition. The operating results of companies
acquired in 2001 since their acquisition have been included in the operating results of
the Intel Communications Group operating segment.

The pro forma information below assumes that companies acquired in 2001 and 2000 had
been acquired at the beginning of 2000 and includes the effect of amortization of goodwill
and other identified intangibles and costs from that date. The impact of charges for
IPR&D has been excluded. This is presented for informational purposes only and is not
necessarily indicative of the results of future operations or results that would have been
achieved had the acquisitions taken place at the beginning of 2000.

Three Months
Ended

Nine Months
Ended

(in millions, except per share

Sept. 29,

Sept. 30,

Sept. 29,

Sept.30,

amounts)

2001

2000

2001

2000

Net revenues

$

6,545

$

8,884

$

19,633

$

25,511

Net income

$

106

$

2,383

$

864

$

7,885

Basic earnings per common share

$

0.02

$

0.35

$

0.13

$

1.17

Diluted earnings per common share

$

0.02

$

0.34

$

0.13

$

1.12

Goodwill and Other Acquisition-Related Intangibles

Goodwill is being amortized over an estimated life of 2 to 6 years. Goodwill is
presented net of accumulated amortization of $2.7 billion and $1.6 billion at September
29, 2001 and December 30, 2000, respectively. During Q3 2001, goodwill was reduced by $135
million, primarily related to the recording of deferred tax assets due to changes in the
estimated recoverability of certain acquired tax benefits.

Other acquisition-related intangibles at the end of each period consisted of the
following (in millions):

Other intangibles include items such as trademarks and workforce-in-place. Upon
adoption of the new Business Combination rules as discussed in "Recent Accounting
Pronouncements," workforce-in-place will no longer meet the definition of an
intangible asset. As a result, the net balance, currently $52 million, will be
reclassified as goodwill. The balances presented above are net of total accumulated
amortization of $534 million and $389 million at September 29, 2001 and December 30, 2000,
respectively.

Amortization of goodwill and other acquisition-related intangibles and costs was $1.8
billion for the first nine months of 2001, including write-offs of $124 million. During
the first nine months of 2001, the company determined that certain remaining unamortized
amounts of goodwill and acquisition-related intangibles related to prior period
acquisitions were impaired and those amounts were written off. In addition, the total
includes $139 million of amortization of acquisition-related stock compensation costs (see
"Acquisition-Related Unearned Stock Compensation") and $61 million of
amortization of other acquisition-related costs.

Acquisition-Related Unearned Stock Compensation

During the first nine months of 2001, the company recorded acquisition-related purchase
consideration and contingent consideration of $249 million as unearned stock-based
compensation. This amount includes the portion of the purchase consideration related to
shares issued contingent upon the continued employment of certain employee stockholders,
and the completion of certain milestones, for nSerial, Nuron, Cognet and LightLogic. The
unearned stock-based compensation also includes the intrinsic value of stock options
assumed that is earned as the employees provide future services. The compensation is being
recognized over the period earned, and the expense is included in the amortization of
goodwill and other acquisition-related intangibles and costs. A total of $139 million of
expense was recognized in the first nine months of 2001 related to current and prior
acquisitions.

Long Term Debt

In the second quarter of 2001, the company issued zero coupon senior exchangeable notes
for $208 million in net proceeds. The note holders have the right to exchange their Intel
notes for Samsung Electronic Co., Ltd. convertible notes owned by Intel, which are then
convertible into equity securities of Samsung. The Intel note holders may exercise their
exchange option on the Intel notes any time prior to January 12, 2004. The exchange option
is being accounted for as an equity derivative under SFAS 133. The carrying value of the
debt instrument, excluding the portion allocated to the equity derivative, will be
accreted to its principal amount of $200 million through interest expense over the period
to its maturity in 2004. The Intel notes are redeemable by Intel at any time between
October 24, 2001 and February 1, 2004.

Income Tax Benefit

During the third quarter of 2001, the company reduced its tax provision by $100
million, or approximately $0.015 per share, due to an increase in the calculated tax
benefit related to export sales for 2000, including the impact of a revision in the tax
law. This change in estimated taxes was reflected in the federal tax return for 2000 filed
during Q3 2001.

In November 1997, Intergraph Corporation filed suit in Federal District Court in
Alabama, generally alleging that Intel attempted to coerce Intergraph into relinquishing
certain patent rights. The suit alleges that Intel infringes five Intergraph
microprocessor-related patents and includes alleged violations of antitrust laws and
various state law claims. The suit seeks injunctive relief, damages and prejudgment
interest, and further alleges that Intel's infringement is willful and that any damages
awarded should be trebled. Intergraph's expert witness has claimed that Intergraph is
entitled to damages of approximately $2.2 billion for Intel's alleged patent infringement,
$500 million for the alleged antitrust violations and an undetermined amount for alleged
state law violations, plus prejudgment interest. Intel believes that it does not infringe
Intergraph's patents and believes those patents are invalid and unenforceable. Intel has
counterclaimed that the Intergraph patents are invalid and further alleges infringement of
seven Intel patents, breach of contract and misappropriation of trade secrets. In March
2000, the District Court granted Intel's motion for summary judgment on Intergraph's
federal antitrust claims, and in April 2000, Intergraph appealed this ruling. In June
2001, the United States Court of Appeals for the Federal Circuit sustained the District
Court's ruling in favor of Intel on the antitrust claims. Intergraph's patent and state
law claims remain at issue in the trial court. In August 2001, Intergraph filed a second
suit in the U.S. District Court for the Eastern District of Texas, alleging that Intel's
Itanium processor infringes two Intergraph microprocessor-related patents. The Texas
suit is currently scheduled for trial in July 2002. The company disputes Intergraph's
claims and intends to defend the lawsuits vigorously.

On May 1, 2000, various plaintiffs filed a class action lawsuit in the United States
District Court for the Northern District of California, alleging violations of the
Securities Exchange Act of 1934 and SEC Rule 14d-10 in connection with Intel's acquisition
of DSP Communications. The complaint alleges that Intel and CWC (Intel's wholly owned
subsidiary at the time) agreed to pay certain DSP insiders additional consideration of
$15.6 million not offered or paid to other stockholders. The alleged purpose of this
payment to the insiders was to obtain DSP insiders' endorsement of Intel's tender offer in
violation of the anti-discrimination provision of Section 14(d)(7) and Rule 14d-10. The
plaintiffs are seeking unspecified damages for the class, and unspecified costs and
expenses. The suit is currently scheduled for trial in July 2002. The company disputes the
plaintiffs' claims and intends to defend the lawsuit vigorously.

On September 10, 2001, VIA Technologies, Inc. and Centaur Technology, Inc. sued Intel
in the United States District Court for the Western District of Texas, alleging that
Intel's Pentium

(R) 4 processor
infringes a VIA microprocessor-related patent. The suit seeks injunctive relief and
unspecified damages. The company disputes the plaintiffs' claims and intends to defend the
lawsuit vigorously.

In September and October 2001, various plaintiffs filed three class action lawsuits
against Intel alleging violations of the Securities Exchange Act of 1934. The complaints
allege that purchasers of Intel stock between July 19, 2000 and September 29, 2000 were
misled by false and misleading statements by Intel and certain of its officers and
directors concerning the company's business and financial condition. In addition, a
stockholder derivative complaint has been filed in California Superior Court against the
company's directors and certain officers, alleging that they have mismanaged the company
and otherwise breached their fiduciary obligations to the company, and seeking unspecified
damages. The company disputes the plaintiffs' claims and intends to defend the lawsuits
vigorously.

The company is currently a party to various legal proceedings, including that noted
above. While management, including internal counsel, currently believes that the ultimate
outcome of these proceedings, individually and in the aggregate, will not have a material
adverse effect on the company's financial position or overall trends in results of
operations, litigation is subject to inherent uncertainties. Were an unfavorable ruling to
occur, there exists the possibility of a material adverse impact on the results of
operations of the period in which the ruling occurs.

Operating Segment Information

Intel is organized into four product-line operating segments, the Intel Architecture
Group, the Wireless Communications and Computing Group, the Intel Communications Group,
and the New Business Group. In addition to the Intel Architecture Group, the company is
reporting on two operating segments that represent its communications businesses,
beginning with the third quarter of 2001. Prior period information has been restated to
conform to the new presentation. The New Business Group is not a reportable segment.

The "all other" category includes acquisition-related costs, including
amortization of goodwill and identified intangibles, in-process research and development,
and write-offs of acquisition-related intangibles, as well as the revenues and earnings or
losses of the New Business Group. "All other" also includes certain
corporate-level operating expenses, including a portion of profit-dependent bonus and
other expenses that are not allocated to the operating segments.

Prior to 2001 the majority of the profit-dependent bonus expenses were
reported at the corporate level. As of the first quarter of 2001, the majority of these
expenses have been allocated to the operating segments. In addition, during the third
quarter of 2001, a small division was moved from the New Business Group in the "all
other" category to the Intel Architecture Group. Information for prior periods has
been restated to conform to the new presentation.

Segment information is summarized as follows (in millions):

Three Months Ended

Nine Months Ended

Sept. 29,

Sept. 30,

Sept. 29,

Sept. 30,

2001

2000

2001

2000

Intel Architecture Group:

Revenues

$

5,393

$

7,039

$

15,653

$

20,450

Operating profit

$

1,328

$

3,347

$

4,436

$

9,292

Intel Communications Group:

Revenues

$

580

$

948

$

1,990

$

2,559

Operating profit (loss)

$

(218)

$

102

$

(606)

$

252

Wireless Communications and
Computing Group:

Revenues

$

509

$

667

$

1,714

$

1,850

Operating profit (loss)

$

(59)

$

149

$

(236)

$

447

All other:

Revenues

$

63

$

77

$

199

$

165

Operating loss

$

(662)

$

(741)

$

(2,346)

$

(2,172)

Total:

Revenues

$

6,545

$

8,731

$

19,556

$

25,024

Operating profit

$

389

$

2,857

$

1,248

$

7,819

Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations

Results of Operations -- Third Quarter of 2001 Compared to Third Quarter of 2000

Our net revenues for Q3 2001 decreased by 25% compared to Q3 2000. The decrease in net
revenues was primarily due to lower revenues on sales of microprocessors in the Intel
Architecture Group, as well as lower revenue for both the Intel Communications Group and
Wireless Communications and Computing Group.

Our gross margin percentage decreased to 46% in Q3 2001 from 64% in Q3 2000, primarily
due to lower revenue from sales of microprocessors and increased start-up costs in the
Intel Architecture Group. In addition, both the Wireless Computing and Communications
Group and the Intel Communications Group contributed to the decline in the gross margin
percentage. See "Outlook" for a discussion of gross margin expectations.

Intel Architecture Group. Net revenues decreased by $1.6 billion, or 23%, in Q3
2001 compared to Q3 2000. The decrease in net revenues was primarily due to lower average
selling prices and lower unit volumes of microprocessors.

For Q3 2001, sales of microprocessors based on the P6 microarchitecture (including the
Celeron

(R), Pentium(R)III and Pentium(R)III Xeon processors), as well as the
related board-level products, such as chipsets, comprised a majority of our consolidated
net revenues and a substantial majority of our gross margin. For the same period, sales of
products based on the Intel(R)
NetBurst microarchitecture,
including the Pentium(R) 4 and
Intel(R) Xeon processors and
related board-level products, were a significant portion of our consolidated net revenues
and gross margins. For Q3 2000, sales of microprocessors and related board-level products
based on the P6 microarchitecture comprised a substantial majority of our consolidated net
revenues and gross margin.

Net operating results decreased by $2.0 billion, or 60%, in Q3 2001 compared to Q3
2000, primarily due to lower average selling prices and lower unit volumes for
microprocessors. In addition, increased start-up costs related to the 0.13-micron process
technology ramp and 300 millimeter wafer manufacturing and higher unit costs for
microprocessors contributed to the decrease.

Intel Communications Group. Net revenues decreased by $368 million, or 39%, in Q3
2001 compared to Q3 2000, primarily due to significantly lower unit volume and lower
pricing for network processing components and microcontrollers, as well as lower unit
sales of telecommunications-related products. The net decrease takes into account some
incremental revenues related to acquisitions completed after Q3 2000.

Net operating results decreased by $320 million to a loss of $218 million in Q3 2001
from a profit of $102 million in Q3 2000 primarily due to the lower unit volume and
pricing on microcontrollers and network processing components. The lower volume of
telecommunications-related products also contributed to the decrease. In addition,
operating expenses for the group increased due to spending related to acquisitions
completed after Q3 2000.

Wireless Communications and Computing Group. Net revenues decreased by $158
million, or 24%, in Q3 2001 compared to Q3 2000, primarily due to a significant decline in
the unit sales of flash memory.

Net operating results decreased by $208 million to a loss of $59 million in Q3 2001
from a profit of $149 million in Q3 2000, primarily due to lower flash memory volume and
the impact of under-utilized factory capacity.

Results of Operations -- Third Quarter of 2001 Compared to Third Quarter of 2000
(continued)

Operating Expenses, Other and Taxes.

Research and development spending, excluding
purchased in-process research and development (IPR&D), decreased $47 million, or 5%,
in Q3 2001 compared to Q3 2000. This decrease was primarily due to lower spending on
0.13-micron process technology development and lower profit-dependent expenses, partially
offset by research and development expenses from acquired companies. Marketing, general
and administrative expenses decreased $257 million, or 19%, in Q3 2001 compared to Q3
2000, primarily due to decreased profit-dependent bonus expenses, Intel Inside(R) program cooperative advertising expenses and
discretionary spending. These decreases were partially offset by marketing, general and
administrative expenses from acquired companies. Excluding the charges for IPR&D and
the amortization of goodwill and other acquisition-related intangibles and costs,
operating expenses were 30% of net revenues in Q3 2001 and 26% of net revenues in Q3 2000.

Amortization of goodwill and other acquisition-related intangibles and costs, included
in "all other" for segment reporting purposes, increased to $609 million in Q3
2001 compared to $420 million in Q3 2000, primarily due to the impact of acquisitions made
since Q3 2000. In July 2001, the Financial Accounting Standards Board issued new standards
for accounting for business combinations and goodwill and intangible assets that will
become effective in January 2002. See "Recent Accounting Pronouncements." If
these new rules had applied in Q3 2001, we estimate that amortization expense would have
been approximately $400 million lower than the $609 million reported for the third quarter
of 2001.

For Q3 2001, net losses on investments in equity securities and certain equity
derivatives were $182 million, compared to a gain of $716 million in Q3 2000. Losses in
the current quarter included impairment charges of approximately $185 million. Interest
and other, net decreased to a loss of $70 million in Q3 2001, compared to income of $250
million in Q3 2000. The decrease was primarily due to an impairment charge of $166 million
on an equity-method investment, lower average interest rates and lower average investment
balances.

Our effective income tax rate was 22.6% in Q3 2001 compared to 34.4% in Q3 2000.
Excluding the impact of amortization of non-deductible goodwill as well as the one-time
tax benefit related to export sales recognized in Q3 2001, our effective income tax rate
was approximately 25.7% for Q3 2001 compared to 31.8% in Q3 2000. The lower expected
annual rate of 25.7% reflects the level of expected income for 2001 and the distribution
of income in various tax jurisdictions.

Results of Operations -- First nine months of 2001 Compared to First nine months of
2000

Our net revenues for the first nine months of 2001 decreased by 22%, compared to the
first nine months of 2000. The decrease in net revenues was primarily due to lower
revenues on sales of microprocessors in the Intel Architecture Group as well as lower
revenue for both the Intel Communication Group and the Wireless Communications and
Computing Group.

Cost of sales for the first nine months of 2001 increased 7% compared to the first nine
months of 2000. Costs increased in the Intel Architecture Group primarily due to increased
start-up costs partially offset by lower unit sales volume. Costs also increased due to
the impact of increased inventory reserves in the flash memory business.

Our gross margin percentage decreased to 48% for the first nine months of 2001 from 62%
in the first nine months of 2000, primarily due to lower revenue from sales of
microprocessors and higher start-up costs in the Intel Architecture Group. The impact of
higher inventory reserves in the flash memory and networking and communications businesses
and the impact of under-utilized factory capacity in the flash memory business also
contributed to the decrease in the gross margin percentage. See "Outlook" for a
discussion of gross margin expectations.

Results of Operations -- First nine months of 2001 Compared to First nine months of
2000 (continued)

Intel Architecture Group. Net revenues decreased by $4.8 billion, or 23%, in the
first nine months of 2001 compared to the first nine months of 2000. The decrease in net
revenues for the Intel Architecture Group was primarily due to significantly lower unit
sales volume of microprocessors and lower average selling prices.

For the first nine months of 2001, sales of microprocessors based on the P6
microarchitecture (including the Celeron, Pentium

III and Pentium III Xeon
processors), as well as the related board-level products, such as chipsets, comprised a
majority of our consolidated net revenues and a substantial majority of our gross margin.
For the same period, sales of products based on the Intel NetBurst microarchitecture,
including the Pentium 4 and Intel Xeon processors and related board-level products, were a
significant portion of our consolidated net revenues. For the first nine months of 2000,
sales of microprocessors and related board-level products based on the P6
microarchitecture comprised a substantial majority of our consolidated net revenues and
gross margin.

Net operating results decreased by $4.9 billion, or 52%, for the first nine months of
2001 compared to the first nine months of 2000, primarily due to lower unit volumes, lower
average selling prices and increased start-up costs related to the 0.13-micron technology
ramp and 300 millimeter wafer manufacturing. Lower unit costs on processors based on the
P6 microarchitecture offset the increased unit costs related to the Pentium 4 processor
ramp.

Intel Communications Group. Net revenues decreased by $569 million, or 22%, in the
first nine months of 2001 compared to the first nine months of 2000, primarily due to
significantly lower unit volume and lower pricing for network processing components and
microcontrollers, as well as lower unit sales of telecommunications-related products. The
net decrease takes into account some incremental revenues related to acquisitions
completed after Q3 2000.

Net operating results decreased by $858 million to a loss of $606 million in the first
nine months of 2001 from a profit of $252 million in first nine months of 2000, primarily
due to the lower volume and pricing on microcontrollers and network processing components,
as well as the lower volume of telecommunications-related products and the impact of
higher inventory reserves. In addition, operating expenses for the group increased due to
higher research and development spending, as well as spending related to acquisitions
completed after Q3 2000.

Wireless Communications and Computing Group. Net revenues decreased by $136
million, or 7%, in the first nine months of 2001 compared to the first nine months of
2000, primarily due to a significant decline in the unit sales of flash memory, partially
offset by a shift in mix to higher density flash memory.

Net operating results decreased by $683 million to a loss of $236 million in the first
nine months of 2001 from a profit of $447 million in the first nine months of 2000,
primarily due to the impact of under-utilized factory capacity, lower flash memory unit
sales volume and higher inventory reserves. Higher research and development spending also
contributed to the decrease.

Operating Expenses, Other and Taxes. Excluding charges of $198 million for
IPR&D related to the acquisitions completed in the first nine months of 2001, research
and development spending was essentially flat in the first nine months of 2001 compared to
the first nine months of 2000. Marketing, general and administrative expenses decreased
$275 million, or 7%, in the first nine months of 2001 compared to the first nine months of
2000. The decrease was primarily the result of decreased profit-dependent bonus expenses,
Intel Inside program expenses and discretionary spending, partially offset by expenses
from acquired companies and increased headcount in the first half of 2001. Excluding the
charges for IPR&D and the amortization of goodwill and other acquisition-related
intangibles and costs, operating expenses were 32% of net revenues in the first nine
months of 2001 and 26% of net revenues in the first nine months of 2000.

Results of Operations -- First nine months of 2001 Compared to First nine months of
2000 (continued)

Amortization of goodwill and other acquisition-related intangibles and costs increased
to $1.8 billion in the first nine months of 2001 compared to $1.1 billion in the first
nine months of 2000, primarily due to the impact of the acquisitions made since Q3 2000
and write-offs of impaired goodwill and identified intangibles of $124 million in the
first nine months of 2001. If the new goodwill and intangible asset accounting standards
issued by the Financial Accounting Standards Board in July 2001 had applied during the
first nine months of 2001, we estimate that amortization expense would have been
approximately $1.2 billion lower than the $1.8 billion reported for the first nine months
of 2001.

For the first nine months of 2001, net losses on investments in equity securities and
certain equity derivatives totaled $179 million, compared to gains of $3.3 billion in the
first nine months of 2000. Losses in the first nine months of 2001 included impairment
charges of approximately $833 million. The gains in the first nine months of 2000 included
the gain on the sale of our investment in Micron Technology, Inc. Interest and other, net
decreased to $320 million in the first nine months of 2001 compared to $638 million in the
first nine months of 2000, primarily due to lower average interest rates and lower average
investment balances and an impairment charge on an equity-method investment, partially
offset by an increase of $45 million due to the cumulative effect of adopting Statement of
Financial Accounting Standard No. 133 in the first quarter of 2001.

Our effective income tax rate was 43.3% for the first nine months of 2001 compared to
29.1% for the first nine months of 2000. The effective rate in 2000 reflected a one-time
benefit of $600 million due to the closure of the Internal Revenue Service (IRS)
examination of our tax returns for years up to and including 1998. Excluding the impact of
non-deductible IPR&D charges and amortization of non-deductible goodwill as well as
the tax benefits related to export sales recognized in 2001 and the IRS settlement
recognized in 2000, our effective income tax rate was 25.7% for the first nine months of
2001, and 31.8% for the first nine months of 2000. The lower expected annual rate in 2001
reflects the level of expected income for 2001 and the distribution of income in various
tax jurisdictions.

Purchased In-Process Research and Development

In the first nine months of 2001, the company recorded $198 million in charges for
IPR&D, including charges related to the acquisitions of Xircom, Inc., VxTel, Inc. and
LightLogic, Inc., as follows:

(Dollars in millions)

IPR&D

Estimated
cost
to complete
technology

Discount
Rate applied
to IPR&D

Weighted
average cost
of capital

Xircom

$

53

$

7

25-55

%

22

%

VxTel

$

68

$

14

25-35

%

22

%

LightLogic

$

46

$

7

25-35

%

23

%

Xircom specializes in PC cards and other products used to connect mobile computing
devices to corporate networks and the Internet. Xircom had 20 IPR&D projects, each
contributing from 1% to 24% of the total IPR&D value. The in-process projects included
the development of next-generation PC card devices for portable computing connectivity
that supports various computing standards. These projects ranged from 5% to 86% complete.
All projects had expected completion dates in 2001. Expected completion dates for two
projects comprising 29% of the total IPR&D value were revised to the first half of
2002, and nine additional projects representing 33% of the total IPR&D value were
cancelled in Q3 2001. These projects were cancelled in order to focus on the core
competencies and the next generation of current products acquired through the Xircom
acquisition.

VxTel designs signal and packet processing silicon and system-level solutions that form
the foundation for next-generation optical networks. VxTel had two IPR&D projects,
with its digital signal processor project accounting for 89% of the total IPR&D value.
The new digital signal processor provides increased channel density with lower power
consumption for voice over packet applications. The project was 84% complete, with an
estimated completion date of Q3 2001, revised to Q4 2001.

LightLogic designs advanced opto-electronic modules for next-generation optical
communication systems. LightLogic had four IPR&D projects, each contributing from 8%
to 52% of the total IPR&D value. These projects combine next-generation optical and
electronic functionality in smaller transmitter and receiver form factors. These projects
ranged from 40% to 80% complete and had expected completion dates in 2001. Two projects
have been completed and the remaining two projects are on hold pending customer
specification input.

The estimated completion dates of IPR&D projects from companies acquired in 1999
and 2000 remain substantially unchanged over the first nine months of 2001. The Level One
Communications, Inc. acquisition projects were substantially completed as of the end of Q1
2001.

Failure to deliver new products to the market on a timely basis, or to achieve expected
market acceptance or revenue and expense forecasts, could have a significant impact on the
financial results and operations of the acquired businesses.

The major sources of cash during the first nine months of 2001 were cash provided by
operating activities of $5.4 billion and proceeds from sales of shares through employee
stock plans of $653 million. Major uses of cash during the period included capital
spending of $6.2 billion for property, plant and equipment, primarily for microprocessor
manufacturing capacity, and $3.0 billion to repurchase 98.4 million shares of common
stock. We also paid $879 million in net cash for acquisitions, including the purchase of
Xircom, VxTel and Cognet, Inc. See "Outlook" for a discussion of capital
expenditure expectations in 2001.

Our five largest customers accounted for approximately 38% of net revenues for the
first nine months of 2001. At September 29, 2001, the five largest customers accounted for
approximately 38% of net accounts receivable.

At September 29, 2001, marketable strategic equity securities totaled $165 million, a
decrease of $1.7 billion compared to $1.9 billion at December 30, 2000. Net unrealized
depreciation was approximately $120 million at September 29, 2001 compared to net
unrealized appreciation of $292 million at December 30, 2000. The decrease in value of our
marketable equity portfolio is primarily due to sales of equity securities and declines in
market values. At September 29, 2001, the carrying value of our non-marketable equity
investments and equity derivatives was $1.8 billion, flat compared to $1.8 billion at
December 30, 2000, primarily as a result of additional investments and the impact of
derivative valuations, offset by impairment charges.

We believe that we have the financial resources needed to meet our business
requirements for the next twelve months, including potential future acquisitions or
strategic investments, capital expenditures for the expansion or upgrading of worldwide
manufacturing capacity, working capital requirements and the dividend program.

This outlook section contains a number of forward-looking statements, all of which are
based on current expectations. Actual results may differ materially. These statements do
not reflect the potential impact of any mergers, acquisitions or other business
combinations that had not closed as of the end of the third quarter of 2001.

Our goal is to be the preeminent building block supplier to the worldwide Internet
economy by focusing on our core competencies in silicon technology and digital computing
and communications. Our primary focus areas are the desktop and mobile platforms, the
server platform, the handheld computing platform, and the networking and communications
platform. The platforms are supported by our four silicon architectures for the Internet:
IA-32, the Itanium processor family, the Intel

The Intel Architecture Group operating segment supports the desktop and mobile
platforms with the IA-32 architecture. The IA-32 architecture includes both the Intel
NetBurst and P6 microarchitectures. Our strategy for desktop and mobile platforms is to
introduce ever-higher performance microprocessors and chipsets, tailored for the different
market segments of the worldwide computing market, using a tiered branding approach. In
line with our strategy, we introduced the Mobile Intel

(R) Pentium(R)III Processor-M, the first in our line of
next-generation mobile processors based on 0.13 micron process technology at speeds up to
1.13 GHz. On October 1, 2001 we also introduced 12 new mobile processors that span all
mobile computing market segments, including a version running at 1.2 GHz. During the third
quarter of 2001, we introduced a version of the Pentium 4 processor at 2.0 GHz. In line
with our Pentium 4 processor strategy, during September we introduced the Intel 845
chipset, which utilizes PC133 SDRAM memory, for Pentium 4 processor-based PC's. We also
expanded our offerings in the value market segment with the introduction of three versions
of the Celeron processor, including one running at 1.1 GHz. During July we announced a
major acceleration of our desktop microprocessor product line to provide a more rapid
transition from the Pentium III
processor to the Pentium 4 processor, and we expect to aggressively ramp the Pentium 4
processor into all mainstream PC price points by the end of 2001.

The Intel Architecture Group operating segment also supports the server platform with
the Intel Xeon processor family under the IA-32 architecture for workstations and
front-end through high-end servers. In the third quarter of 2001, we introduced the Intel
Xeon processor running at 2.0 GHz, for dual processor, high-performance and mid-range
workstations. Our strategy for the server platform is to provide higher performance
processors and the best price for performance for the various server market segments. The
Intel Architecture Group also supports the 64-bit Itanium processor family for
enterprise-class servers and workstations. To further enhance the acceptance and
deployment of our server products by our customers, we also provide e-Business enabling
solutions.

We plan to cultivate new businesses as well as continue to work with the computing
industry to expand Internet capabilities and product offerings, and develop compelling
software applications that can take advantage of higher performance microprocessors and
chipsets, thus driving demand toward our newer products in each computing market segment.
Our microprocessor products compete with existing and future products in the various
computing market segments and we have experienced an increase in the competitive product
offerings in the performance desktop market segment. We may continue to take various
steps, including reducing microprocessor prices and offering rebates at such times as we
deem appropriate, in order to increase acceptance of our latest technology and to remain
competitive within each relevant market segment.

Within the Intel Communications Group, our strategy for the networking and
communications platform is based on three focus areas that are defining trends for the
Internet: Ethernet connectivity products, network processing solutions, and
high-performance, low-power building blocks for telecommunications. Each of these trends
relies on technology where we have core competencies. We plan to expand on our strength in
Ethernet connectivity as Ethernet expands from the local area network (LAN) environment
into the wireless market segment and the networked storage market segment. In the
networked storage market segment, we are developing products that enable storage resources
to be added to any location on an Ethernet network. For the metropolitan area network
(MAN) and wide area network (WAN) market segments, we are providing Ethernet, as well as
Synchronous Optical Network (SONET) and Synchronous Digital Hierarchy (SDH) based
opto-electronic components at multiple levels of integration to provide lower cost and
increased speed and reach. SONET and SDH are the primary optical data transport standards
in the

telecommunications industry. Our network processing solutions, based on the Intel IXA
architecture, provide programmable silicon and software building blocks that enable faster
development, more cost-effective deployment and future upgradability of network and
communications systems. For our telecommunications customers, our focus is on providing
high-performance, high-density, low-power processing building blocks combined with an open
computer systems architecture.

Within the Wireless Communications and Computing Group, our strategy for the cellular
handset and handheld computing platform is to deliver complete solutions that enable quick
deployment of applications and services for wireless Internet and personal information
devices. The Intel PCA architecture describes the separation of communications and
applications building blocks for cellular phones and portable handheld devices. By
separating the communications and applications elements within a device, Intel PCA allows
for faster time-to-market for our customers and a standard, scalable platform for
applications development. Our current and expected future products for the handheld
platform include flash memory, processors based on the Intel

We have made acquisitions and expect to make additional acquisitions, including
acquisitions to grow our communications businesses. If these acquisitions fail to deliver
new products or to gain expected market acceptance, or if market conditions in the
communications businesses fail to improve, our revenue and expense forecasts for the
acquired businesses may not be achieved. This could have a significant impact on the
operations of the acquired businesses and other Intel operations as well as the financial
results of the acquired businesses and the value of related intangible assets, including
goodwill.

Continuing uncertainty in global economic conditions make it particularly difficult to
predict product demand. Considering the current weak economic conditions and decline in
consumer confidence, we do not expect to see normal seasonal trends in the fourth quarter
for our microprocessor business. In general, the steep decline seen over the past year in
our communications businesses appears to have abated. We believe the flash memory business
has stabilized, but we continue to see weak demand from telecommunications customers. For
the fourth quarter of 2001, we expect revenue to be between $6.2 billion and $6.8 billion,
compared to third quarter revenue of $6.5 billion. Our financial results are substantially
dependent on sales of microprocessors and related components by the Intel Architecture
Group. Revenue is partly a function of the mix of microprocessor types and speeds sold as
well as the mix of related chipsets, motherboards, purchased components and other
semiconductor products, all of which are difficult to forecast. Because of the wide price
difference among types of microprocessors, this mix affects the average price that we will
realize and has a large impact on our revenues and gross margins. Microprocessor revenues
are also dependent on the availability of other parts of the system platform, including
chipsets, motherboards, operating system software and application software. Revenue is
also subject to the impact of economic conditions in various geographic regions.

We expect the gross margin percentage in the fourth quarter of 2001 to be approximately
47%, plus or minus a couple of points, compared to 46% in the third quarter. Our
expectations for the fourth quarter assume a richer overall product mix, firming demand,
and improving factory utilization. Our gross margin percentage in any period varies
depending on the mix of types and speeds and the pricing of microprocessors sold as well
as the mix of microprocessors and related motherboards and purchased components. Various
other factors -- including unit volumes, yield issues associated with production at
factories, ramp of new technologies, excess of manufacturing capacity, the reusability of
factory equipment, excess inventory, inventory obsolescence, variations in inventory
valuation and mix of shipments of other semiconductor and non-semiconductor products --
will also continue to affect the amount of cost of sales and the variability of gross
margin percentages.

We have expanded our semiconductor manufacturing and assembly and test capacity over
the last few years, and continue to plan capacity based on the assumed continued success
of our strategy and the acceptance of our products in specific market segments. We
currently expect that capital spending will be approximately $7.5 billion in 2001. If the
demand for our products does not continue to grow and move rapidly toward higher
performance products in the various market segments, revenues and gross margins could be
adversely affected and manufacturing capacity could be under-utilized. This spending plan
is dependent upon delivery times of various machinery and equipment, and construction
schedules for new facilities. Depreciation for the fourth quarter of 2001 is expected to
be approximately $1.1 billion. Amortization of goodwill and other acquisition-related
intangibles and costs is expected to be approximately $550 million in the fourth quarter.

Spending on research and development, excluding IPR&D, plus marketing, general and
administrative expenses in the fourth quarter of 2001 is expected to be between $2.0
billion and $2.1 billion, compared to third quarter expenses of $2.0 billion. Expenses may
vary from this expectation depending, in part, on the level of revenue and profits.

Research and development spending, excluding IPR&D, is expected to be approximately
$3.9 billion in 2001, lower than the previous expectation of $4.0 billion, due to
significant reductions in discretionary spending within ongoing programs and a small
reduction in headcount.

In March 2001, we announced that we expect to reduce headcount by approximately 5,000
people over the remainder of 2001, predominantly through attrition and a voluntary
separation program. The planned reduction excludes any headcount additions from
acquisitions in 2001. We continue to expect that we will meet our headcount reduction
goals by year-end.

We expect net losses on equity investments and interest and other for the fourth
quarter of 2001 to be a loss of $230 million, due to an expectation of a net loss on
investments in equity securities of approximately $280 million, primarily as a result of
impairment charges. These expectations will vary depending on equity market levels and
volatility and the prices realized on the sale of investments, including gains or losses
on investments acquired by third parties, determination of impairment charges including
potential impairment of non-marketable investments, interest rates, cash balances,
mark-to-market of derivative instruments and assuming no unanticipated items.

We expect the tax rate for 2001 to be approximately 25.7%, excluding the impact of
IPR&D charges and non-deductible amortization of goodwill and the one-time benefit
related to export sales in 2000. This estimate is based on current tax law, the current
estimate of earnings, the expected distribution of income among various tax jurisdictions,
and is subject to change.

We are currently a party to various legal proceedings. Although litigation is subject
to inherent uncertainties, management, including internal counsel, does not believe that
the ultimate outcome of these legal proceedings will have a material adverse effect on our
financial position or overall trends in results of operations. However, if an unfavorable
ruling were to occur in any specific period, there exists the possibility of a material
adverse impact on the results of operations of that period. Management believes that,
given our current liquidity and cash and investment balances, even an adverse judgment
would not have a material impact on cash and investments or liquidity.

Our future results of operations and the other forward-looking statements contained in
this Outlook involve a number of risks and uncertainties -- in particular the statements
regarding our goals and strategies, expectations regarding new product introductions and
additional acquisitions, plans to cultivate new businesses to expand the Internet,
revenues, pricing, gross margin and costs, capital spending, depreciation and
amortization, research and development expenses, headcount reduction expectations,
expectations for losses on investments in equity securities and interest and other, the
tax rate and pending legal proceedings. In addition to the factors discussed above, among
the other factors that could cause actual results to differ materially are the following:
business and economic conditions and trends in the computing and communications industries
in various geographic regions; possible disruption in commercial activities occasionedby
terrorist activity and armed conflict, such as changes in logistics and security
arrangements, and reduced end-user purchases relative to expectations; changes in customer
order patterns; competitive factors such as rival chip architectures and manufacturing
technologies, competing software-compatible microprocessors and acceptance of new products
in specific market segments; pricing pressures; development and timing of the introduction
of compelling software applications; continued success in technological advances,
including development and implementation of new processes and strategic products for
specific market segments; execution of the manufacturing ramp including the transition to
0.13-micron process technology; the ability to grow new networking, communications,
wireless and other businesses and successfully integrate and operate any acquired
businesses; impact of events outside the United States, such as the business impact of
fluctuating currency rates or unrest or political instability in a locale, such as unrest
in Israel;unanticipated costs or other adverse effects associated with processors
and other products containing errata (deviations from published specifications); and
litigation involving antitrust, intellectual property, consumer, stockholder and other
issues.

We believe that we have the product offerings, facilities, personnel, and competitive
and financial resources for continued business success, but future revenues, costs,
margins and profits are all influenced by a number of factors, including those discussed
above, all of which are inherently difficult to forecast.

Status of Business Outlook and Scheduled Business Update:

We expect that our corporate representatives will meet privately during the quarter
with investors, the media, investment analysts and others. At these meetings, we may
reiterate the current published Outlook. At the same time, we will keep this Outlook
publicly available on our Web site (www.intc.com). Unless we are in a Quiet Period (described below), the public can continue to
rely on the Outlook on the Web site as being our current expectations on matters covered,
unless we publish a notice stating otherwise.

We intend to publish a Business Update press release on December 6, 2001, and
hold a related analysts' conference call (available for listening by webcast).From
the close of business on November 30, 2001 until publication of the Business Update press
release, we will observe a "Quiet Period." During the Quiet Period, the Outlook
and other forward-looking statements contained in our Earnings Releases and Business
Update press releases as well as in our filings with the SEC, such as this Form 10-Q,
should be considered to be historical, speaking as of prior to the Quiet Period only and
not subject to update. During the Quiet Period, our representatives will not comment
concerning the Outlook or our financial results or expectations.

A Quiet Period, operating in similar fashion with regard to the Business Update and our
SEC filings, will begin at the close of business on December 14, 2001, and will extend
until the day when our next quarterly Earnings Release is published, presently scheduled
for January 15, 2002.

Intel, Intel Inside, Pentium, Celeron, Intel Xeon, PentiumIII Xeon, Itanium, Intel NetBurst, and Intel XScale are trademarks or registered
trademarks of Intel Corporation or its subsidiaries in the United States and other
countries.

* Other names and brands may be claimed as the property of others.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For financial market risks related to changes in interest rates and foreign currency
exchange rates, reference is made to Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, in the Registrant's Annual Report on Form 10-K for the year
ended December 30, 2000 and to the subheading "Financial Market Risks" under the
heading "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 38 of our 2000 Annual Report to Stockholders.

We have a portfolio of strategic equity investments that includes marketable securities
classified as either marketable strategic equity securities or trading assets as well as
derivative equity instruments such as warrants and options. We may or may not enter into
transactions to reduce or eliminate our market exposure on these investments. These
investments are generally in companies in the high-technology industry, and a substantial
majority of the market value of the portfolio is in three sectors: semiconductor, Internet
and networking. As of September 29, 2001, five equity positions constituted approximately
43% of the market value of the portfolio, with no individual position exceeding 15% of the
portfolio.

We analyzed the historical movements over the past several years of high-technology
stock indices that we considered appropriate. Based on the analysis, we estimated that it
was reasonably possible that the prices of the investments in our portfolio could
experience a 30% adverse change in the near term. Assuming a hypothetical 30% adverse
change in market prices and after reflecting the impact of hedges or offsetting positions
that are in place, our portfolio would decrease in value by approximately $75 million,
based on the value of these investments as of September 29, 2001. The portfolio's
concentrations in specific companies or sectors may vary over time and may be different
from the compositions of the indices analyzed, and these factors may affect the
portfolio's price volatility. This estimate is not necessarily indicative of future
performance, and actual results may differ materially.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

Reference is made to Item 3, Legal Proceedings in our Annual Report on Form 10-K for
the year ended December 30, 2000 for descriptions of the following and other legal
proceedings.

Intergraph Corporation v. Intel
U.S. District Court, Northern District of Alabama, Northeastern DivisionU.S. District Court, Eastern District of Texas

In November 1997, Intergraph Corporation filed suit in Federal District Court in
Alabama, generally alleging that Intel attempted to coerce Intergraph into relinquishing
certain patent rights. The suit alleges that Intel infringes five Intergraph
microprocessor-related patents and includes alleged violations of antitrust laws and
various state law claims. The suit seeks injunctive relief, damages and prejudgment
interest, and further alleges that Intel's infringement is willful and that any damages
awarded should be trebled. Intergraph's expert witness has claimed that Intergraph is
entitled to damages of approximately $2.2 billion for Intel's alleged patent infringement,
$500 million for the alleged antitrust violations and an undetermined amount for alleged
state law violations, plus prejudgment interest. Intel believes that it does not infringe
Intergraph's patents and believes those patents are invalid and unenforceable. Intel has
counterclaimed that the Intergraph patents are invalid and further alleges infringement of
seven Intel patents, breach of contract and misappropriation of trade secrets. In March
2000, the District Court granted Intel's motion for summary judgment on Intergraph's
federal antitrust claims, and in April 2000, Intergraph appealed this ruling. In June
2001, the United States Court of Appeals for the Federal Circuit sustained the District
Court's ruling in favor of Intel on the antitrust claims. Intergraph's patent and state
law claims remain at issue in the trial court. In August 2001, Intergraph filed a second
suit in the U.S. District Court for the Eastern District of Texas, alleging that Intel's
Itanium

processor infringes two Intergraph microprocessor-related patents. The Texas suit
is currently scheduled for trial in July 2002. The company disputes Intergraph's claims and intends to defend the lawsuits
vigorously.

On May 1, 2000, various plaintiffs filed a class action lawsuit in the United States
District Court for the Northern District of California, alleging violations of the
Securities Exchange Act of 1934 and SEC Rule 14d-10 in connection with Intel's acquisition
of DSP Communications, Inc. The complaint alleges that Intel and CWC (Intel's wholly owned
subsidiary at the time) agreed to pay certain DSP insiders additional consideration of
$15.6 million not offered or paid to other stockholders. The alleged purpose of this
payment to the insiders was to obtain DSP insiders' endorsement of Intel's tender offer in
violation of the anti-discrimination provision of Section 14(d)(7) and Rule 14d-10. The
plaintiffs are seeking unspecified damages for the class, and unspecified costs and
expenses. The suit is currently scheduled for trial in July 2002. The company disputes the
plaintiffs' claims and intends to defend the lawsuit vigorously.

VIA Technologies and Centaur Technology, Inc. v. IntelU.S. District Court, Western District of Texas

On September 10, 2001, VIA Technologies, Inc. and Centaur Technology, Inc. sued Intel
in the United States District Court for the Western District of Texas, alleging that
Intel's Pentium

In September and October 2001, various plaintiffs filed three class action lawsuits
against Intel alleging violations of the Securities Exchange Act of 1934. The complaints
allege that purchasers of Intel stock between July 19, 2000 and September 29, 2000 were
misled by false and misleading statements by Intel and certain of its officers and
directors concerning the company's business and financial condition. In addition, a
stockholder derivative complaint has been filed in California Superior Court against the
company's directors and certain officers, alleging that they have mismanaged the company
and otherwise breached their fiduciary obligations to the company, and seeking unspecified
damages. The company disputes the plaintiffs' claims and intends to defend the lawsuits
vigorously.

Item 6. Exhibits and Reports
on Form 8-K

(a) Exhibits

12.1 Statement
setting forth the computation of ratios of earnings to fixed charges.

(b) Reports on Form 8-K

1. On July 19, 2001, Intel
filed a report on Form 8-K relating to financial information for Intel
Corporation
for the quarter ended June 30, 2001 and forward-looking statements relating
to 2001 and
the third quarter of 2001 as presented in a press release of July 17, 2001.

2. On September 7, 2001,
Intel filed a report on Form 8-K relating to an announcement
regarding an
update to forward-looking statements relating to 2001 and the third
quarter of
2001 as presented in a press release of September 6, 2001.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.